The following is the response the Open Knowledge Foundation submitted to the UK Government’s consultation on the public data corporation launched along with the consultation on open data in August 2011.
The consultation document references the paper Models of Public Sector Information Provision via Trading Funds (Newbery, Bentley and Pollock, 2007), commissioned by HM Treasury, and we quote it extensively (one of its co-authors is the principal author of this consultation response), and rely on the evidence-base therein.
1. How do you think Government should best balance its objectives around increasing access to data and providing more freely available data for re-use year on year within the constraints of affordability? Please provide evidence to support your answer where possible.
Funding for public sector information can come from three basic sources: government, ‘updaters’ (those who update or register information) and ‘users’ (those who want to access and use it). Policy-makers control the funding model by setting charges to external groups (‘updaters’ or ‘users’) and committing to make up any shortfall (or receive any surplus) that results. Much of the debate focuses on whether ‘users’ should pay charges sufficient to cover most costs (average cost pricing) or whether they should be given marginal cost access — which practically equates to free when the information is digital. However, this should not lead us to neglect the third source of funding via charges for ‘updates’.
There is a general proposition that public sector goods and services should be offered at efficient prices, unless there are compelling reasons to depart from efficiency. In the absence of beneficial (or harmful) spill-overs, the efficient price is marginal cost (with supply adapted such that the short and long-run marginal costs are equal). One reason for departing from efficient pricing is that the marginal cost is below the average cost, and that the benefits of a hard budget constraint outweigh the distortionary costs of raising the revenue to make up the short-fall, not from general taxation, but from raising the price of the products supplied.
When it comes to charging ‘users’ of public sector information the case for pricing at marginal cost or below is very strong for a number of complementary reasons (note that, for most digital data, marginal cost will be approximately zero).
First, the distortionary costs of average rather than marginal cost pricing are likely to be high because: a) the mark-up to cover fixed costs is high, as marginal costs are such a low fraction of average costs b) the demand for digital data as with other information services is likely to be high and growing c) there are likely to be large beneficial spill-overs in inducing users to create new products and services based on the information.
Second, the case for hard budget constraints to ensure efficient provision and induce innovative product development is weak for public enterprises not subject to regulation and providing monopoly services without fear of competition. It would be far better to address issues of incentives, regulation and commitment explicitly rather than indirectly through budget constraints.
Finally, in many cases of data providers considered here, the government is already providing effectively a large contribution to fixed costs, without allowing the public to enjoy the benefits of efficient pricing.
By contrast, it may well be good policy to charge ‘updaters’ of public sector information prices above marginal costs, using the funds thereby obtained to cover (some portion) of the fixed costs of maintenance and collection. This is in accordance with good Ramsey pricing principles that if distortionary mark-ups are necessary to cover or contribute to fixed costs, they should be higher for inelastically demanded goods and lower for elastically demanded ones (in simple cases, the mark-up divided by the price should be inversely proportional to the elasticity of demand).
Summing up: Most “upstream”, digital public sector information is best funded out of a combination of ‘updater’ fees and direct government contributions with users permitted free and open access. Appropriately managed and regulated this model offers major societal benefits from increased provision and access to information-based services while imposing a very limited funding burden upon government
2. Are there particular datasets or information that you believe would create particular economic or social benefits if they were available free for use and re- use? Who would these benefit and how? Please provide evidence to support your answer where possible.
Socially optimal policy would involve (a) leaving the charging regime for many (probably most) products unchanged (b) moving to marginal cost charging for bulk ‘upstream’ digital data. Note that the items in the first category would primarily be downstream products built on upstream data. These would now be in commercial competition with other suppliers — as such suppliers would now have access to upstream data at marginal cost. Thus one added benefit of adopting the marginal cost pricing scheme is that it would immediately address the competition concerns (raised in the past by, for example, the OFT).
Certain characteristics of a dataset should determine that it be made available at zero or marginal cost to the public, namely that:
- It is “upstream”, in digital format and in bulk form (rather than e.g. small parts of the dataset)
- The Importance of the data for promoting political accountability (e.g., Companies House data, public expenditure data)
- The degree to which it is widely reusable and is needed for integration with a wide range of other datasets (e.g., the Postcode Address File, Companies House data which provides identifiers used for linking other datasets)
3. What do you think the impacts of the three options would be for you and/or other groups outlined above? Please provide evidence to support your answer where possible.
The Freemium model could easily have the effect of a considerable reduction in opportunities for innovative use of public data. The analogy with Freemium services and software may not hold very well for data: evaluative use of datasets may require considerable processing on the whole of a dataset; the various types of limitations envisaged on data use may be destructive of a wide range of productive uses. We would emphasize that most organizations would still be able to offer downstream services (as most do already) and, assuming they are competitive, would still be able to generate revenue in this way.
10. To what extent is the current regulatory environment appropriate to deliver the vision for a PDC? and 11. Are there any additional oversight activities needed to deliver the vision for a PDC and if so what are they?
Policy-makers must concern themselves with the regulatory structure in which the PDC will operate. The need to provide government funding can raise major commitment questions while the fact that many public sector information holders are the sole source of the information they supply raise serious competition and efficiency issues.
Having an adequate structure in place is essential for a public sector information holder’s performance — be that in terms of efficiency, information quality etc. Furthermore, such a regulatory structure is important under all funding options — and this structure should (and can) be chosen largely independently of the funding / licensing options. Thus, getting regulation right should be at the very top of the agenda.
What form should regulation and oversight in this area take? The answer is reasonably simple (see also the detailed discussion in Newbery, Bently and Pollock (2007) and Pollock (2009)). Regulation should be transparent, independent and empowered. For every public sector information holder there should be a single, clear, source of regulatory authority and responsibility, and this ‘regulator’ should be largely independent of government.
It is important to emphasize that having an adequate governance/regulatory regime in place is absolutely central to realizing the potential benefits from change (and also for delivering value for money even under the present charging arrangements). Thus, getting this right should be one of the first items for consideration whether or not any restructuring does take place. The substantial experience with regulation both in the UK and abroad in recent years should assist greatly in performing this task.
Pollock, R. (2009). The Economics of Public Sector Information. Cambridge University Economics Department Working Papers 0920. http://www.econ.cam.ac.uk/cgi-bin/repec-wp.pl?series=camdae&filename=2009&paperid=0920
